Kagara calls in the minders

Base metals miner and one-time market darling Kagara Mining has called in administrators after being hobbled by a lack of available cash, but the company’s directors hope to trade out of the situation.

Kagara executives worked hard through last week to find a suitable solution to ease the tight funding position, but late on Sunday Taylor Woodings was appointed as voluntary administrator.

The miner had been backed into a corner after sliding copper and zinc prices and a high Australian dollar reduced the profitability of its north Queensland mines.

Michael Ryan of Taylor Woodings said yesterday his firm had yet to assess Kagara’s affairs and there was “very little" he could say about its financial position. He confirmed it was a liquidity issue that had forced the firm’s hand.

“The directors formed a view that there was insufficient liquidity to continue trading without the protection of voluntary administration," he said.

“They took the decision that it would provide the company with the breathing space to review and then consider various options for restructuring the company."

Kagara finished 2011 with $10.8 million in cash, but its accounts included a statement from auditor Crowe Howarth saying its ability to continue as a going concern was reliant on additional financing and asset sales.

Last month it collected $68 million from the sale of its Lounge Lizard nickel deposit in Western Australia. But $40 million of that was used to pay down a working capital facility with long-time lender ANZ Group that had been called in.

Related Quotes

Company Profile

Wilson HTM analyst Andrew Pedler, who has been following Kagara since 2006, said yesterday was “a scary day" for the investors. But management told him it was confident of exiting administration.

“I get the sense that it’s more a case . . . that the voluntary administration was put in place to give the company a bit of a shield from any other creditors that might get nervous and decide to pull the pin," he said. “It’s to allow them a cleaner run so they can get the bank facilities that they are currently in reorganised and the new bank facilities that they want properly installed.

“I don’t know if I could put a probability on it, but I think this one has a decent chance of working its way through. Clearly, the sooner it can be done the better."

Kagara chief executive
Geoff Day
, who joined Kagara in March last year from Newcrest Mining, was unavailable for comment yesterday, but sources close to the company said the board hoped to resume trading.

Mr Pedler said he understood Kagara was in talks to replace performance bonds in place to ensure the company properly rehabilitated its mines with an insurance policy, which would free up some cash.

There was also the balance of the proceeds from the Lounge Lizard sale and additional cash from copper concentrate that is still being produced at the Mt Garnet processing facility.

“Superficially at least, you would think that Kagara’s head should be above water," Mr Pedler said.

“It’s a frustrating puzzle for me. Clearly some events, seemingly bank-related around Easter, have tripped them up."

At one stage before the global financial crisis, Kagara had a market value in excess of $1 billion. But as commodity markets recovered post-GFC, its share price failed to do the same. Observers put this down to the limited life and high cost of its mines.

Last September Mr Day unveiled his five-year plan to reinvigorate the company. The strategy centred on an intensive exploration effort to allow an increased rate of mining that would bring costs down, but he has never been able to implement it.

Kagara founder
Kim Robinson
, who stepped down as chairman in March, declined to comment on the situation yesterday. Soon after Mr Robinson resigned as chairman, he was forced to sell nearly a third of his shareholding in the company to repay $910,200 in margin loans.